Iron Hill Brewery of Rehoboth Beach, LLC v. Coastal Station Development Co., LLC

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
IRON HILL BREWERY OF REHOBOTH )
BEACH, LLC, a Delaware Limited Liability )
Company, )
)
Plaintiff, ) C.A. No. N18C-12-100 MMJ
)
v. )
)
COASTAL STATION DEVELOPMENT )
CO., LLC, a Delaware Limited Liability )
Company Assignee of COASTAL )
STATION, LLC, a Delaware Limited )
Liability Company, )
)
Defendant. )
)
COASTAL STATION DEVELOPMENT )
CO., LLC, a Delaware Limited Liability )
Company, )
)
Third-Party Plaintiff, )
)
v. )
)
IRON BREWERY, LLC, a Delaware )
Limited Liability Company, )
)
Third-Party Defendant. )
Submitted: December 23, 2020
Decided: March 10, 2021
DECISION FOLLOWING TRIAL
Adam L. Balick, Esq., Melony Anderson, Esq., Balick & Balick, LLC,
Wilmington, Delaware, Attorneys for Plaintiff.
Charles J. Brown, III, Esq., Gellert Scali Busenkell & Brown, LLC, Wilmington,
Delaware, Attorney for Defendant.
JOHNSTON, J.
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FACTUAL BACKGROUND
This breach of contract case stems from a commercial lease (the “Lease”).
Defendant Coastal Station Development Co. (“Coastal Station”) is the landlord.
Plaintiff Iron Hill Brewery of Rehoboth Beach, LLC (“Iron Hill”) is the tenant.
The purpose of the Lease was development of a property to house an Iron Hill
Brewery restaurant. Coastal Station agreed to provide Iron Hill with a “vanilla”
shell. Iron Hill agreed to build out the interior space. The Tenant Improvement
Allowance was $1,657,500.
There were a number of issues with the construction process. Iron Hill elected
to change architects after the Lease was executed. The new architect proposed
certain changes to the construction plan. Construction was delayed so that these
design modifications could be incorporated. The parties incurred extra costs as a
result of the design changes. Iron Hill agreed to cover all increased costs.
Iron Hill’s Claims
Iron Hill claims entitlement to payment of:
(1) The third installment of the Tenant Improvement Allowance
($828,750.00);
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(2) Reimbursement for work that was Coastal Station’s obligation under
the Lease, but that the parties subsequently agreed that Iron Hill would
perform ($72,191.30); and
(3) Credit for work performed by Iron Hill on the concrete slab and
storefront ($115, 230).
Coastal Station’s Setoff Claim
Coastal Station argues that it is entitled to a setoff claim totaling $351,718.10.
Costal Station’s claim is broken down as follows:
(1) Building Permits - $6,054.60;
(2) Plan Review Fees - $14,720.00;
(3) EDU Fees - $94,128.00;
(4) Concept Changes - $199,249.20; and
(5) Architecture - Design Changes - $37,566.30.
BURDEN OF PROOF
The burden of proof in civil cases is a preponderance of the evidence. “[T]he
Court shall find in favor of the party upon whose side the greater weight of the
evidence is found.”1
1
D.W. Burt Concrete Constr., Inc. v. Dewey Beach Enters., Inc., 2016 WL 639653, at *2 (Del.
Super.).
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ANALYSIS
Non-Disputed Claims
Coastal Station does not dispute that Iron Hill is entitled to $828,750.00 for
the third installment of the Tenant Improvement Allowance. Coastal Hill also does
not dispute that Iron Hill is entitled to $72,191.30 for work that Coastal Station
was obligated to do under the terms of Lease, but that Iron Hill completed.
Iron Hill does not dispute that Coastal Station is entitled to a setoff for building
permits in the amount of $6,054.60. Iron Hill also does not dispute that Coastal
Station is entitled to a setoff for Plan Review Fees in the amount of $12,800.
Disputed Claims
Concrete Slab
Iron Hill asserts that it is entitled to $115,230 for work completed on a
concrete slab and the storefront. Coastal Station does not dispute that Iron Hill is
entitled to a credit for this work. However, Coastal Station disputes the amount
and argues that the credit owed should be $90,320. After consideration of the
briefs submitted by the parties and the testimony presented at trial, the Court finds
that the evidence weighs in Iron Hill’s favor. Iron Hill is entitled to the full
amount.
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EDU Fees
Equivalent Dwelling Unit (“EDU”) fees are assessed by counties and
municipalities to account for the impact that new constriction will have on existing
infrastructure. Exhibit H-1 of the Lease requires Coastal Station “to pay all water
and sewer tap fees, utility connection fees, impact or other fees regarding the
building and premises.” The Lease additionally provides:
Tenant shall apply for and obtain the issuance of the required permits
for the Tenant Improvements. Landlord and Tenant shall reasonably
cooperate with one another in the application for and prosecution of all
such permits and approvals. Tenant shall bear the cost of all required
permits, together with such other architect fees, engineer fees, interior
design fees, site supervision fees, utility fees, tapping fees, capacity
charges, meter fees, inspection fees and dumpster rental and dumpster
pull charges as may be necessary.2
Coastal Station argues that the Lease obligates it to pay the EDU fees
associated with the “building,” while Iron Hill must pay the EDU fees associated
with the fit-out of the premises. Iron Hill claims that the Lease requires Coastal
Station to pay all of the EDU fees because Exhibit H-1 specifically refers to the
building “and premises.” Both parties presented testimony as to how these Lease
provisions should be interpreted.
2
Ex. G-1, ¶ 3.
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It is a well settled principle of contract interpretation that the Court must “read
a contract as a whole and . . . give each provision and term effect, so as not to render
any part of the contract mere surplusage.”3 The Court finds as a matter of contract
interpretation that as to responsibility for the disputed fees, Exhibit G-1 is more
specific and Exhibit H-1 is more general. In cases such as this, the more specific
contractual provision controls. 4 Therefore, the reasonable interpretation of the Lease
is that Iron Hill must bear the cost of all EDU fees associated with the “Tenant
Improvements” portion of the structure. Coastal Station’s obligation is limited to
the EDU fees related to the portions of the building and premises that are not part of
Iron Hill’s obligation.
The Court finds that Coastal Station is entitled to a setoff in the amount of
$94,128.00 for EDU fees associated with Iron Hill’s fit-out.
Fifteen Percent Markup
Coastal Station’s general contractor applied a 15% markup on invoices for
permit fees and plan review fees. Coastal Station contends that the markup is
3
MicroStrategy Inc. v. Acacia Research Corp., 2010 WL 5550455, at *6 (Del. Ch.).
4
See Sunline Commercial Carriers, Inc. v. CITGO Petroleum Corp., 206 A.2d 836, 846 (Del.
2019) (“general terms of the contract must yield to more specific terms”); DCV Holdings, Inc. v.
ConAgra, Inc., 889 A.2d 954, 961 (Del. 2005) (“where specific and general provisions conflict,
the specific provision ordinarily qualifies the meaning of the general one”).
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appropriate because the contractor’s resources were involved in obtaining the
permits and in connection with reviewing the plan. Iron Hill counters that there is
nothing in the Lease that allows Coastal Station to charge a markup.
The Court finds that there is no basis for a setoff of the 15% markup. There
is no evidence that the parties agreed to include any overhead percentage in any
invoiced expense.
Concept and Design Changes
Coastal Station claims entitlement to a setoff for architect design changes in
the amount of $37,718.10. Iron Hill concedes a setoff of $34,000. The remaining
expenses associated with the concept changes are disputed:
(1) Structural Steel - $98,880;
(2) Exterior Finishes - $19,380;
(3) Metal Studding - $14,040;
(4) Carpentry - $16,680; and
(5) Delay Damages - $50,269.20.
Iron Hill contends that the evidence Coastal Station submitted at trial is
insufficient to support these charges.
Prior to trial, Iron Hill sought discovery concerning Coastal Station’s alleged
costs for “concept changes.” The Court granted Iron Hill’s Motion to Compel on
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July 9, 2019. By decision on the record on August 22, 2019, the Court granted in
part Iron Hill’s Motion for Sanctions and required production of the requested
documents by September 5, 2019. On October 22, 2019, the Court ordered that
Coastal Station would not be permitted to produce any additional documents relating
to its counterclaims. By Order dated September 18, 2020, the Court granted Iron
Hill’s Motion in Limine to strike the portions of Coastal Station’s expert report that
relied on unproduced documents, and to preclude the expert’s testimony to the extent
he relied on unproduced documents. In short, Iron Hill repeatedly sought discovery
concerning the basis for Coastal Station’s counterclaims and Coastal Station failed
to provide any supporting documentation beyond a single invoice.
The invoice became Exhibit 12 at trial. It simply lists the amounts claimed
for each item and the total amount. Exhibit 12 purports to be an invoice from the
general contractor, MBM Construction, LLC (“MBM”). However, there are a
number of discrepancies between Exhibit 12 and other MBM invoices submitted to
the Court, such as those in Exhibit 50. First, Exhibit 12 lacks an MBM logo. Second,
the format and font are completely different from the other MBM invoices. Third,
Exhibit 12 is dated January 31, 2018, and yet includes charges for delays that Coastal
Station’s witness testified occurred between January and March of 2018. Fourth,
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MBM’s address in Exhibit 12 includes an erroneous zip code. Fifth, “Costal” is a
misspelling in Exhibit 12 that does not occur in any of the other MBM invoices.
It appears to the Court that Exhibit 12 is not an invoice created by MBM under
its usual business practices. Additionally, Coastal Station did not provide: (1)
change orders for amounts above the original bids; (2) invoices from vendors or
subcontractors; (3) cancelled checks; or (4) other evidence in support of the amounts
claimed in Exhibit 12. It is also curious that Exhibit 12 contains a $37,566.30 charge
for “Architecture – Design Changes (Becker Morgan).” The trial evidence
demonstrated that Becker Morgan contracted directly with Coastal Station. Becker
Morgan would have had no reason to bill Coastal Station through MBM.
Exhibits 28 and 29 are MBM’s steel invoices totaling $202,000. Iron Hill
adduced trial testimony that the design changes did not justify the $98,128 increase
in steel cost. Other testimony confirmed Iron Hill’s position that such a cost increase
would have required MBM to issue a change order seeking approval of the additional
expense. MBM had utilized change orders at other times during the construction
process.
The Court finds that, with the exception of the conceded $34,000 in
Architecture Fees, Coastal Station has failed to prove entitlement to any setoffs for
the listed design and concept changes.
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CONCLUSION
The Court finds that Iron Hill has proved by a preponderance of the evidence
that it is entitled to payment of:
(1) The third installment of the Tenant Improvement Allowance
($828,750.003);
(2) Reimbursement for work that was Coastal Station’s obligation under
the Lease, but that the parties subsequently agreed that Iron Hill would
perform ($72,191.30); and
(3) Credit for work performed by Iron Hill on the concrete slab and
storefront ($115, 230.00).
Coastal Station has proved by a preponderance of the evidence that it is
entitled to setoffs for:
(1) Building Permit - $6,054.60;
(2) Plan Review Fees - $12,800.00;
(3) EDU Fees - $94,128.00; and
(4) Architecture Fees - $34,000.00.
Coastal Station has failed to prove entitlement to setoffs for:
(1) Concept Changes - $199,249.20; and
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Less $549,223.20 that was paid by Coastal Station on October 5, 2018.
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(5) Architecture - Design Changes - $3,566.30.
Iron Hill is awarded prejudgment interest at the legal rate, accruing from July
15, 2018.5
The Court finds that there is not a single prevailing party. Therefore, the Court
declines to award attorneys’ fees pursuant to the Lease. However, the Court awards
certain attorneys’ fees to Iron Hill as a sanction against Coastal Station. Coastal
Station must cover the attorneys’ fees that Iron Hill incurred in connection with Iron
Hill’s Motion in Limine to Strike Portions of the Expert Report of Michael Stortini
and to Limit His Testimony at Trial. Iron Hill’s Motion was granted by Order dated
September 18, 2020.
IT IS SO ORDERED.
/s/ Mary M. Johnston
The Honorable Mary M. Johnston
5
6 Del. C. § 2301.
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